Designated Orders 9/25 to 9/29

Professor Samantha Galvin of University of Denver Sturm College of Law brings us this week’s edition of Designated Orders. This week she looks at an order involving a Collection Due Process case in which the notes of the Settlement Officer and the determination letter ultimately sent do not match. She also writes about an order ruling on the admissibility of the testimony of an expert witness because the expert witness left some information off of his report tending to show that he might be favorably disposed to the IRS. I have written before about disqualification of an expert witness. A motion to disqualify an expert creates a serious point in any case in which a party relies on such a witness and failing to properly set up such testimony can have consequences that can easily change the outcome of the case. Samantha found a third order, the one in the Gabr case linked first in the next paragraph, to be of enough importance that she is going to write a standalone post on that case. Keith

The Tax Court designated six orders last week and two are discussed below. The orders not discussed involved: 1) a faxed CDP request and a question of the Court’s jurisdiction (here); 2) an order granting a motion for continuance (here); 3) an order addressing several of petitioner’s various motions (here); and 4) an order denying a petitioner’s motion to seal (here).

This designated order covers a topic that is often blogged about by PT and in other designated orders, which is whether or not underlying liability can be raised during a CDP hearing. This time, however, the petitioner has an interesting argument for raising the underlying liability and for why he should not be liable. The petitioner resides in the 8th Circuit, so the Court has to follow Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006), and review the determination based on the administrative record. Both parties have moved for summary judgment.

Petitioner was a lawyer and this is not the first time he has been before the Tax Court. He was before the Court on a different, but related issue where he was indicted and convicted for failure to pay over income and FICA taxes owed, in addition to other charges.

The tax at issue also concerns employment taxes owed by his now inactive law firm, and specifically, the trust fund recovery penalties (TFRP) assessed to petitioner in his individual capacity. Trust fund recovery penalties can be assessed without the right to judicial review, but a taxpayer has the right to request a hearing with an IRS appeals officer before the assessment takes place. Petitioner received a Letter 1153, proposing to assess TFRP, and he requested such a hearing.

In his pre-assessment hearing, the petitioner argued that the had filed returns for the quarters at issue more than three years prior when he gave the returns to an IRS criminal investigator, and therefore, the IRS’s assessment statute had expired before the assessment at issue was made. To make this argument, petitioner incorrectly relied on Dingman v. Commissioner, 101 T.C.M. 1562 (2011). The appeals officer, in the pre-assessment hearing, disagreed that the returns had been filed because unlike in Dingman, the returns had not actually been filed, and found petitioner liable for the underlying employment taxes, and thus, the TFRP.

The IRS sent petitioner a Notice of Federal Tax Lien and notice of intent to levy and petitioner requested another hearing, this time a collection due process hearing. In this CDP hearing, petitioner attempted to make the same argument he had made in his pre-assessment hearing. This time, the appeals officer assigned to the CDP hearing believed petitioner was correct and made notes in the file stating that the “taxpayer can raise liability and the assessment is not valid.”

These notes were never written into a notice of determination, and instead the appeals officer was removed from the case. The case was reassigned, but the second appeals officer had had prior involvement so was also removed from the case.

A third appeals officer was assigned to the CDP case and sustained the lien, but not the levy. Similar to the appeals officer in the petitioner’s pre-assessment hearing, the third appeals officer found that turning over the returns to an IRS criminal investigator was not a filing, so the assessment statute had not expired. He also found that petitioner had no right to challenge the liability in the CDP hearing, since he had had a prior opportunity to do so.

Petitioner petitioned Tax Court on the third appeals officer’s notice of determination. Petitioner argued that first appeals officer’s notes should be treated as the determination and that the Court give full force and effect to the first CDP hearing appeals officer’s findings, decisions and agreements.

Code sections 6320 and 6330 do not define the word determination, but the applicable regulation defines it by stating that a notice of determination will be sent by certified or registered mail and set forth Appeals’ findings and decisions. The determination defined in the regulations is the type of determination that is needed to establish the Court’s jurisdiction, so the IRS’s preliminary notes or drafts are not a determination.

Since petitioner had an opportunity to raise the underlying liability in his pre-assessment hearing, the Court found he could not do so again in the CDP context. The Court found that the appeals officer did not abuse his discretion, denied petitioner’s motion for summary judgment, granted respondent’s motion and allowed respondent to proceed with the collection of the TFRP for the relevant periods.

PT previously covered a different designated order from the Estate of Michael Jackson’s case a few months ago. The first, here, involved section 6751(b).

In this designated order involving a completely different issue, petitioner moved to strike the testimony of respondent’s expert witness. The expert witness testified about the value of some of the estate’s assets. The expert witness was also respondent’s only witness, so without his testimony the Respondent will have no evidence.

In his motion, petitioner argued that Tucker v. Commissioner should apply. In Tucker, the Court excluded an expert witness’s testimony for violating Tax Court Rule 143(g).

Rule 143(g) governs expert witness reports and establishes requirements for what the reports should contain. The requirements relevant in Tucker, as well as this case, are: 1) the witness’s qualifications, including a list of all publications authored in the previous ten years; and 2) a list of all other cases in which, during the previous four years, the witness testified as an expert at trial or by deposition. If the requirements are not, the rule also requires that the witness’s testimony be excluded altogether unless good cause is shown, and the failure does not unduly prejudice the opposing party.

In Tucker, the Court excluded the witness’s testimony because he failed to disclose two cases in which he had testified as an expert during the previous four years and the Court could not find good cause for the omission. The witness also omitted or exaggerated other information which caused the Court to be concerned.

In the present case, the petitioner asserted that the witness lied when he testified that he had not worked similar issues for the IRS, but the witness admitted to the lie during trial when confronted by documentary evidence and further questioning. The witness also omitted two items, one case and one publication, from his CV.

Petitioner argued that the Court should strike all of the witness’s testimony and expert reports due to perjury, however, perjury is a criminal offense and this is not a criminal case so instead the Court finds, and neither party disputes, that the witness lied under oath.

Respondent, to show good cause, stated the witness’s omissions were a clerical error and the Court agreed with that reasoning because the witness disclosed hundreds of cases and more than 100 publications, so omitting only two items was an oversight. The petitioner also did not assert that it was unduly prejudiced by the omission.

Petitioner also argued the witness is biased in favor of the Respondent. The Court pointed out that bias goes to weight of testimony and not admissibility, unless the report is absurd or “so far beyond the realm of usefulness” to be admissible.

The petitioner also argued that Rule of Evidence 702 (addressing reliability) and 402 (addressing relevancy) should apply to exclude the evidence. The Court finds excluding the evidence is too severe since it will result in leaving Respondent without any evidence about one of the key issues in the case and instead, a proportionate remedy is to discount credibility and weight given to the expert witness’s opinions.

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Leslie Book

Keith Fogg

T. Keith Fogg is a Clinical Professor of Law at Harvard Law School where he started a tax clinic in 2015. Prior to joining the faculty at Harvard, he began his academic career at Villanova Law School in 2007 after working for over 30 years with the Office of Chief Counsel, IRS. Read More…

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